Eskom Power Cuts Revive Threat to South African Businesses

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Eskom Holdings SOC Ltd. Power Grid As Debt Risks Impacting South Africa Economy
Photographer: Waldo Swiegers/Bloomberg

South Africa’s Eskom Holdings SOC Ltd. started a second day of power cuts, creating uncertainty that endangers businesses that are highly dependent on the utility, a group representing the biggest electricity users said.

President Cyril Ramaphosa has initiated a split of the state-owned electric company that is struggling under 419 billion rand ($31 billion) of debt and declining demand. A breakup into generation, distribution and transmission businesses will enable each unit to better manage costs and make it easier to raise funding. Rating companies see Eskom as a key risk to Africa’s most-industrialized economy, with blackouts and huge debt a drag on growth prospects.

“We’re going to see companies close in the smelting industry,” said Shaun Nel, a spokesman for the Energy Intensive Users Group of South Africa, whose members consume more than 40 percent of the nation’s power and include Anglo American Plc. Between already-high tariffs and the specter of more supply cuts, the victims will be “small foundries and smelters that shut down and never come back,” he said.

Eskom implemented so-called stage 2 rotational power cuts throughout the country on Monday. That involves taking 2,000 megawatts demand out of the system to prevent a complete collapse of the system. While generation units have returned to service, others have continued to trip, according to the utility.

The country is Africa’s biggest steel producer, and Eskom first throttles supply to industrial customers before cutting retail consumers.

Availability of the generation fleet, which comprises aging units and new plants struggling with defects, is expected to decline through March before starting a slow recovery, Eskom said in a November presentation.